A tenants’ campaign group claims the Starter Homes scheme will help just 200,000 first-timer buyers, leaving 2 million aspiring home owners stuck renting.

Generation Rent said the scheme’s potential rewards far exceed the already generous returns of home ownership, as buyers can sell at full market price after five years of ownership.

With the House of Lords to debate the policy as part of the Housing Bill this week, Generation Rent proposes that Starter Homes are only resold to first-time buyers at the same discount that the first group will enjoy, and that they are only built in addition to – not instead of – affordable homes to rent.

Under current government plans, first-time buyers using the Starter Homes scheme to buy a newly built home at a 20% discount would be able to sell it on after five years for the full market price. 

With house prices predicted to rise by an average of 5% a year, the average new-build home in England worth £297,000 could be bought for £238,000 under the scheme, then sold for £379,000 after five years.

The owner would pocket £141,000 – enough to build another affordable home.

In London, with an average new build price of £479,000, a home could be bought for £383,000 and sold for £611,000 five years later: a profit of £228,000. With 200,000 homes built and sold in total, this windfall would add up to £26.8bn.

The government plans to build Starter Homes instead of affordable homes for rent, costing the taxpayer £2.3bn, but as each Starter Home is sold off, it disappears into the open market, never to be replaced by another affordable home. If homes sold off under Right to Buy are replaced exclusively by Starter Homes, this will erode the supply of sub-market housing.

Only 200,000 households stand to benefit from the Starter Homes scheme, out of 2.3m private renter households estimated by the English Housing Survey to expect to buy a home.

Generation Rent suggests that by maintaining the discount in perpetuity instead of five years, the government could ensure that each Starter Home benefits multiple households over future generations. When a Starter Home’s first owner decides to move, they could only sell to another first-time buyer at a 20% discount to the prevailing market price, and so on, ensuring that the home remains affordable.

Betsy Dillner, director of Generation Rent, said: “The government said its Starter Homes would be exclusively for first-time buyers, but by letting them vanish into the open market after five years, they’re betraying the millions who are stuck renting.

“A perpetual 20% discount would help multiple first-time buyers, instead of a jammy handful of winners in a multibillion pound raffle. While a household using the scheme couldn’t sell at the full market price they would be in a much better financial position than if they were still renting.

“The government should keep its promise to first-time buyers and build Starter Homes for the many, not the few – as well as homes for those who aren’t in a position to buy.”